Just closed on first property. Best way to utilize equity for next property?

[Brice McGee]

Hey everyone, 

I've been reading BP books and following along in the forums trying to learn as much as possible and I'm finally making my first post. I recently graduated college and moved back down to Louisville. I'm working in Commercial Property Management and trying to get my start in Real Estate Investing. 

I just closed on my first property and was able to get a great deal on it. It appraised for $50K more than the purchase price giving me a great deal of added equity. My plan is to use this equity to keep the ball rolling and put money down on my next property. I am wondering what the best way to go about this would be? With currently having a higher interest rate I thought refinancing if rates were to go down and using that approach could be a good option. What do you guys recommend is the best way to pull equity for my next property?

Happy to be here and look forward to engaging in the community!

[Jonathan Greene]

I like the way you are thinking, but I would not move too quickly in this market. After you get your first property, your real job is to make sure that property is running at the best it can be. Spend money on repairs and replacements now instead of buying into a second potential headache with more things that can break at the same time. Keep your eyes open for that second deal, but make sure you won't get some unexpected costs coming on your first property.

[Jonathan Greene]

I like the way you are thinking, but I would not move too quickly in this market. After you get your first property, your real job is to make sure that property is running at the best it can be. Spend money on repairs and replacements now instead of buying into a second potential headache with more things that can break at the same time. Keep your eyes open for that second deal, but make sure you won't get some unexpected costs coming on your first property.

[Tyler Case]

Echoing Jonathan! I would keep the main thing, the main thing for now while keeping your eyes peeled for the next deal. Once that property is stabilized and you've got some cash reserves, you'll be in a better position to utilize equity without spreading yourself too thin if/when something goes wrong with either. 

[Michael Smythe]

You'll need to wait 6 months before most lenders will recognize the appraised value over the purchase price for a refinance.

[Brice McGee]

Quote from @Jonathan Greene:

I like the way you are thinking, but I would not move too quickly in this market. After you get your first property, your real job is to make sure that property is running at the best it can be. Spend money on repairs and replacements now instead of buying into a second potential headache with more things that can break at the same time. Keep your eyes open for that second deal, but make sure you won't get some unexpected costs coming on your first property.

I understand what you mean with the current market. I don't want to rush into the next too fast but am eager to keep the momentum going and portfolio growing. I'm really just trying to continue educating myself the best I can to be able to take that next step when it's appropriate. I appreciate the advice and will make sure to settle in on the first property before getting ahead of myself with another! Thank you for the feedback!

[Brice McGee]

Quote from @Tyler Case:

Echoing Jonathan! I would keep the main thing, the main thing for now while keeping your eyes peeled for the next deal. Once that property is stabilized and you've got some cash reserves, you'll be in a better position to utilize equity without spreading yourself too thin if/when something goes wrong with either. 

Thanks, Tyler! I'm wanting to make sure I continue building off this first property but I see what you all mean not doing too much too fast and spreading myself too thin. I just want to build the knowledge to be able to execute a second deal in the best way once this first property stabilizes and I am ready to take the next step. I appreciate the advice!

[Brice McGee]

Quote from @Michael Smythe:

You'll need to wait 6 months before most lenders will recognize the appraised value over the purchase price for a refinance.

 Got it. I was not aware of the timeline for that appraised value, that's good to know. Thanks, Michael!

[Nick Karni]

@Brice McGee One more thing to consider is qualifying for financing. Not sure what your current DTI is but you may benefit from having your current rental income count as income and less so as debt. In my area, lenders want to see a tax return, minimum of 1 year of rental income history before counting that as additional income. These are conventional lenders mind you. If you go with unconventional financing you may not need to wait. Hope this helps.

[Daniel Dobbs]

Welcome to BP! Sounds like a good deal that you found. There is a 6 month wait period but, it is looking like interest rates are going to take a while to come back down. Are you doing multi-family or single-family homes?